The state bought this Knoxville building, now home to Pellissippi State Community College, by tapping $87 million it had previously budgeted for TennCare. / Wade Payne

Written by

Walter F. Roche Jr.

The Tennessean

Developer Samuel Furrow is a Haslam family friend.

Campaign contributions to Haslam from investment group individuals

Sam Furrow — Furrow, his wife, Ann, and his son donated a total of $17,000 in 2009 and 2010. Thomas Cigarran — Cigarran, his wife and son contributed $12,000 from 2009 through 2011. James Clayton — Clayton and his wife donated $10,000 in 2009. Fred Langley — Langley and his wife donated $10,000 in 2009 and 2010. C. Randy Massey — Massey gave $5,000 in 2009 and 2010.

Making the deal a priority

Raja Jubran, acting on behalf of developer Sam Furrow, sent an email to Gov. Bill Haslam’s chief of staff, Mark Cate, to try to speed up the state’s purchase. The request set off a chain of emails to top administration officials, including Tennessee Board of Regents Chancellor John Morgan, to help move the process along.

Thomas Cigarran says he was passive investor.

Estimates for total repair costs for the Pellissippi State building ranged from $3.1 million to nearly
$5 million, records show. / Wade Payne / Thunderhead Photography

A group of politically connected businessmen earlier this year sold a long-vacant Knoxville office building in need of millions of dollars in repairs and upgrades to the state for $10 million, twice the price they paid for it five years earlier.

A series of emails obtained by The Tennessean under open records laws shows that the top aide to Gov. Bill Haslam stepped in late last year to try to make the purchase a priority after being contacted by an intermediary for the Knoxville developer selling the 220,000-square-foot building.

The developer, Samuel J. Furrow, has been a business partner with the governor in the past and a friend of the governor’s father, who loaned Furrow’s wife $1 million while Furrow was trying to sell the building to the state.

Furrow and his investment group bought the vacant property at 7201 Strawberry Plains Pike for $5 million on June 28, 2007, from North American Philips and sold it to the state on March 9, 2012, for $10 million, according to public records.

“We stole it (from Philips) and sold it to the state,” Furrow said in a telephone interview, attributing the gain on the investment to a low purchase price.

He said the deal did not produce a full$5 million profit because of expenses such as interest and maintenance.

“We did everything right and for the right reasons,” Furrow said, calling the sale “clean as a whistle.”

Needed repairs

The state bought the building by tapping $87 million that it had previously budgeted for TennCare, the state’s Medicaid program for the poor. But that money was able to be shifted for other uses when the federal government boosted its share of Medicaid funding for Tennessee as part of the stimulus package. In addition to $8.5 million in state funds, $1.5 million was contributed by the Pellissippi State Foundation toward the purchase.

Tennessee officials set aside an extra $2 million for immediate repairs, including a new roof. Estimates for total repair costs ranged from $3.1 million to nearly $5 million, records show. And to make the entire building suitable for use as a community college, a report dated Nov. 28, 2011, by Community Tectonics to Pellissippi State concluded it would cost $16.6 million, or $75 a square foot. Among that report’s recommendations was replacement of the heating and air conditioning system.

Despite the new roof and other recommendations for fixes, Furrow said he was not aware of the need for any repairs and noted the terms of the sale called for the building to be in usable condition. He did say that he spent $400,000 to eliminate a mold problem in the building before the state would complete the purchase.

The college began using parts of the building in August and 262 students currently attend classes there, said Monica Greppin-Watts, spokeswoman for the Tennessee Board of Regents. Enrollment on the Strawberry Plains campus is projected to climb to 600 full-time equivalent students by 2017. The college plans to lease back to the state 85,000 square feet for offices unrelated to the college, she added.

Eventually, Board of Regents officials say, the college hopes to occupy the entire building and phase in the various needed repairs.

No other locations were fully evaluated

Pellissippi officials have wanted to open another campus to reach potential students in what they say were underserved sections of Knox County and wanted to use this building for nursing and future allied health programs.

Community college officials cited an August 2010 study to the Board of Regents that documented the need “to expand citizen access to post secondary educational opportunities. This unique facility would meet all the college’s needs to fill this identified need.”

The new campus is 26 miles from Pellissippi’s main campus. Pellissippi has two other locations in Knoxville and a campus in Blount County. The nearest Pellissippi campus to Strawberry Plains is about 10 miles away on Magnolia Avenue.

Greppin-Watts said college officials examined two vacant retail locations but rejected them because they “didn’t meet the college’s short- or long-term plans. The cost of renovating these types of properties would be much higher.” However, a cost analysis of the two retail locations was not documented, she said.

“Pellissippi State determined that the cost of the building and any identified improvements would be well below the cost to construct a new facility, and this was the best suited to meet the campus’s immediate and future needs. It also allowed the college to begin offering classes in that area more quickly,” she said.

Former Pellissippi President Allen Edwards, who advocated for Furrow’s building before his retirement, said no other sites were fully evaluated because the building in the eastern part of the county was the only one suitable to their needs.

In fact, the state does not require its agencies or departments to evaluate competing proposals for more than one piece of property when purchasing a building, according to Kelly Smith, spokeswoman for the Department of General Services. “Nor does it require the state agency to post public notice requesting proposals when it is looking to make a purchase,” she said. The State Building Commission, however, must approve property purchases.

Even before the purchase, Edwards committed the school to back-to-back six-month leases totaling $28,800 ending in September of 2011. The money was paid even though the building remained vacant and unusable. The school also paid utilities on the property during the lease period.

Edwards said he did not remember the reason for the leases, which he signed on behalf of the school.

Other college expansions

Pellissippi is not the only community college that has expanded lately, adding buildings in new locations to reach new students.

A review of recent community college expansions shows that Nashville State Community College purchased for $3 million the former Dillard’s in Hickory Hollow Mall using the same pool of state money. Though its cost was considerably less, at 200,000 square feet, it was only 20,000 square feet smaller than the Knoxville building.

Chattanooga State Community College also tapped the funds to purchase a 186,000-square-foot former warehouse and a 25,000-square-foot parking garage across the street from its current campus.

In addition to the $9 million in state funds, the project was financed by $3 million from Wacker Industries, which has opened a training program in part of the facility. The total project cost was $13.2 million, when including cost of renovations.

One of the appraisals for the Strawberry Plains building in Knoxville included comparable sales of other office buildings in Knoxville, Nashville, Murfreesboro and near Memphis. That appraisal valued the property at $10.85 million, and another set it at $11.6 million.

However, at the time of the state purchase, the property was assessed by Knox County for tax purposes at $4.4 million, according to Jim Weaver, chief deputy assessor for Knox County.

Weaver said the county’s assessment was set at 100 percent of the market value of the property. “That building had set vacant for years,” he said.

The governor’s press secretary, Alexia Poe, said the governor was aware of the Knoxville building’s purchase but noted the process began before he became governor in January 2011. She said Haslam had never discussed the sale with Furrow or any of the other investors.

“The department (General Services) did its job in looking out for the financial interests of the state and Tennessee taxpayers,” Poe said.

Board of Regents records show that the investors put up less than $5 million and financed the purchase with a mortgage. Those records show that $4.8 million was still owed on that loan when the state bought the property.

Cigarran said he was a passive investor. “Smart people got together and bought low and sold it for a fair price,” he said. He said the prior owners couldn’t sell it, and the price kept going lower.

Another one of the investors, Sharon Pryse, a Knoxville banker, said she was pleased with the deal.

“It was a great property and a great return.”

She attributed the success to Furrow’s strategy of buying “distressed properties that have been on the market for a while.”

Asked if she knew how the sale to the state came about, she said, “My guess is that Sam marketed it, because that’s what he does.”

Haslam father lends $1M to developer's wife

Furrow and his wife have had financial dealings and relationships with the Haslam family through the years.

Most recently, in June 2011, James Haslam II, the governor’s father, lent $1 million to Furrow’s wife on her Nantucket Island property in Massachusetts.

James Haslam II did not respond to a telephone message left at his home. Poe said in the written response to questions that the governor was not aware of the Nantucket loan.

The governor’s father and Ann Furrow also served together on the board of trustees for the University of Tennessee for several years.

Furrow and the governor have been co-investors in a real estate venture, Furrow-Holrob Development I. The partnership, SEC records show, at one time leased property to the Ruby Tuesday restaurant chain, where the governor’s brother was a board member.

Furrow said he does not currently have any business partnership with the Haslam family. Poe, in the written response, also said that the governor had no business involvement with Furrow now or when the state was considering the purchase.

Furrow said the loan to his wife was unrelated to his sale of the Strawberry Plains property to the state. “Absolutely not,” Furrow said. “I’ve known Jim Haslam for 40 years.”

Making deal a priority

Records obtained by the Tennessean under the state public records law show that a flurry of email activity began on Nov. 3, 2011, when Raja Jubran, acting as an intermediary for Furrow, contacted the governor’s chief of staff, Mark Cate.

Furrow told The Tennessean he wanted to complete the sale before the end of 2011 for tax reasons and he was concerned that other community colleges were competing for the same state funds.

Jubran, who has been involved in business dealings with the governor in the past, urged in his email that the deal be closed by the end of the year. Though the effort ultimately failed because promised repairs had yet to be completed by Dec. 31, 2011, Jubran’s email set off a chain of emails involving high-level Haslam administration executives that outline their efforts to make the deal a priority.

Jubran wrote to Cate that the sale had all the needed approvals and “all it needs is a final signature, and I think the matter is in front of the Education commissioner, and he just needs to sign. The only favor that Sam Furrow is asking is, if everything is ok with the deal he would appreciate their signature and closing prior to year end.”

Cate forwarded the email at 8 a.m. to John Morgan, chancellor of the state Board of Regents, and Morgan emailed back at 11:50 a.m.

“We think a year end closing is possible but will be pretty tight,” Morgan wrote. “We have asked them to move it along but it might help if you let the commissioner (General Services Secretary Steve Cates) know it is a priority.”

Haslam’s chief of staff then forwarded the email chain to the General Services Secretary Cates, who forwarded it to his staff asking for information.

After hearing back the next morning that “the only thing that would keep us from closing is there is a large list of items that Mr. Furrow needs to repair,” Cates forwarded that information to Haslam’s chief of staff, Cate.

Cate then forwarded the email chain back to Jubran, who responded on Nov. 4, 2011, “Do you mind if I share with Sam (Furrow),” Jubran wrote.

“As long as he keeps it to himself,” Haslam’s chief of staff responded.

“I will just call and tell him, I think that is better anyway,” wrote Jubran.

“That would be perfect,” Cate wrote in reply.

Two weeks later, Cate sent an email to Cates, the general services secretary, reminding him of the deal and giving him Furrow’s phone number.

The next business day, on Nov. 21, 2011, General Services Secretary Cates emailed Haslam’s chief of staff back, saying, “We talked to Mr. Furrow. Great call, but we should discuss.”

Greppin-Watts, the Board of Regents spokeswoman, said the deal was not pushed along unduly. “There was no pressure on our part to hurry the project,” she said.

Asked if he thought he received favorable treatment, Furrow said, “God no, I felt I was being abused.”